Less quality more costs: Does local power sector reliability matter for electricity intensity?

The paper describes the main determinants of electricity intensity in twenty-nine transition economies. We provide an original analysis on the way the local power sector unreliability may affect the firm-level electricity intensity. The paper explains the different firm’s behaviour, within EU and outside EU, in front of outages and/or local supply power quality. For this purpose, we use the Business Environment and Enterprise Performance Survey (BEEPS) done in 2008-2009 over 2400 enterprises. Moreover, we built an innovative measure of the electricity supply quality at the local-level inspired by the previous work of Guiso et al. (2004). Our results indicate that in non-EU (or insufficiently reformed) countries power sector unreliability increases firm’s electricity intensity. We estimated a potential reduction of one-fifth of firm’s electricity intensity associated with an improvement from the 75th percentile to the 25th percentile of the distribution of the local power sector unreliability. Our results suggest that bad quality of the local power sector seems to dampen the firms’ ability to decreases their electricity consumption, if the country’s institutional framework is poor.